In Part 1, we discussed how the world transitioned from a system where money was backed by gold to our current system, where money is backed by trust (fiat money)¹. We suggested that the old, straightforward advice to "buy and hold" stocks might not be as practical when financial rules are changing.
In this Part 2, we’ll focus on the recent shifts, both in the U.S. and globally, that should matter to you, the everyday investor.

 Where the Global Economy Stands Today

A. Slowing Down, But Still Pricey

Think of the global economy as a car: it’s slowing down, but the price of gas (inflation) is still higher than it used to be.
Growth is Cooling: The global economy is expected to grow at a slightly slower pace over the next couple of years. The International Monetary Fund (IMF) projects that global growth will ease from approximately 3.3% in 2024 to 3.1% in 2026 ². Slower growth generally means less opportunity for companies to increase their profits rapidly.
Inflation is Stubborn: While the high prices from the pandemic and energy shocks have eased, prices are still rising faster than they did before the COVID-19 pandemic. For example, the European Central Bank (ECB) expects Euro-area inflation to settle around 1.9% in 2026, which is lower but not back to the old "easy" days³. Stubborn inflation is a problem because it erodes the value of your savings over time.

B. Central Banks Are No Longer a Team

For years, it seemed that all the world's major central banks were following the same playbook: keeping interest rates low and keeping money cheap. That era is over. Now, they are moving in different directions, which we call policy divergence:
The U.S. Federal Reserve has kept its main interest rate high (around 4.25%-4.50% for much of 2025) as it battles to control prices ⁴. They are being cautious about cutting rates.
Other central banks, such as the ECB, have begun to cut rates or signaled their readiness to do so, as their growth is weaker ⁵.

C. Why Divergence Affects You

When central banks don't move together, it adds risk to your portfolio:
Stock Risk: If growth slows, stocks (especially those with high growth expectations) become more sensitive to negative news.
Squeezed Returns: If inflation remains high but your savings or bond returns don’t keep up, your real return (what you earn after accounting for price increases) gets squeezed.
Currency Chaos: Diverging policies can lead to significant fluctuations in currency values, potentially impacting the value of your international investments.

Deep Shifts in the Economic Order

Beyond the monthly data, structural changes are shaking the very foundation of the financial world:

A. Central Bank Credibility: It Matters

Central banks are supposed to be independent, like referees. If people start to believe they are bowing to political pressure—losing their credibility—it can be a serious problem. The IMF warned that this could cause inflation expectations to "de-anchor" ⁶.
What this means: If everyone expects prices to keep rising quickly, workers demand higher wages, and companies raise prices—creating a vicious cycle. If a central bank appears weak, markets will require a higher risk premium (a higher interest rate) to lend money, leading to instability.

B. Tangible Assets Are Back in the Spotlight

Regulators recently made a quiet, yet essential, change by reclassifying gold as a high-quality (Tier 1) asset for banks⁷. This signals a preference for tangible items when the financial system is under stress.
Now, with record government and private debt and the end of pandemic-era support (like Quantitative Easing or QE), physical assets are gaining attention:
Gold, land, and infrastructure are seen as better hedges when the paper-based system (fiat money) looks shaky or governments make policy mistakes.

C. Government Spending and Geopolitics

Money policy (rates) is only half the story; fiscal policy (government spending and debt) is the other half.
Global events, such as the war in Ukraine and disruptions to global supply chains, are making it increasingly difficult to control inflation ⁸.
Global trade is fracturing: Instead of a single, unified global marketplace, we are witnessing the emergence of regional trade blocs and an increase in sanctions. This marks the end of the "old normal" of smooth, predictable globalization, leading to increased policy risk and wider disparities in economic outcomes between countries.

Investment Strategy for the New Era

The old regime—where low rates and steady inflation created a perfect playground for high-growth stocks—is fading. Assets that act as a portfolio ballast (a stabilizing force) are becoming essential:
Don't Over-Rely on the Growth Narrative: While growth stocks can still be great, they may not offer the same easy cushion they did when money was dirt cheap.
Embrace Diversifiers: Assets such as gold, inflation-protected bonds, and tangible assets (like land or infrastructure investments) can play a significantly more critical role than they did in the last decade.
Be Flexible and Liquid: With quick market reactions fueled by digital trading, the ability to adjust your holdings (being liquid) is a valuable defense against surprise shocks.
Diversify Currencies and Geography: Since different central banks make different choices, the performance of one country's stocks and bonds can vary significantly from another's. Your portfolio needs to consider which economy it is exposed to, not just "global stocks."
The Era of Low Rates May Be Over: Don't assume borrowing will always be cheap. Investors need to plan for a world where money costs more than it has in the past.
The bottom line is that the backdrop for investing is now more dynamic and less predictable. Adapting to this new order means paying attention to the policy shifts, staying flexible, and not expecting the simple patterns of the past decade to repeat themselves.

References:

¹. Shelton, J. (n.d.). “Trump vs Powell – New Gold-Backed Sound Money Plan Revealed.” YouTube.
². International Monetary Fund. (2025, October). World Economic Outlook, October 2025: Global economy in flux, prospects remain dim.
³. European Central Bank. (2025, March). Economic Bulletin Issue 2, 2025.
⁴. U.S. Bank. (2025). Federal Reserve Policy Tracker.
⁵. Levinsky, N. (2025, June 24). Global central banks hold steady as inflation eases and trade risks rise. SabioTrade.
⁶. Reuters. (2025). IMF warns central bank independence critical to fight inflation.
⁷. Gold and Basel III – EFG International. (2019). Gold’s Tier 1 Status.
⁸. Financial Times. (2025). ECB warns supply shocks threaten inflation control.

Important Disclosures

This commentary is for informational purposes only and should not be considered a recommendation to buy or sell any security or the provision of specific investment advice.

The opinions and forecasts expressed are those of Keaney Financial Services Corp. as of the date of this commentary, are subject to change at any time based on market and other conditions, and may or may not come to pass.

The KFSC Macro Regime Model is a proprietary tool, and its analysis is based on historical data; it does not guarantee future results. Past performance is not indicative of future results.

The rapid fluctuations in commodities will lead to significant volatility in an investor's holdings. Commodities include increased risks, such as political, economic, and currency instability, and may not be suitable for all investors.

All investing involves risk, including the possible loss of principal. Please consult with your financial advisor to determine if the strategies discussed are suitable for your personal financial situation. Consult your qualified financial, legal, or tax advisor before making investment decisions.